Rich get richer while poor get taxed

The Boston Consulting Group is one of the most prestigious management consulting firms in the world.

Among its former employees are Benjamin Netanyahu, prime minister of Israel, Mitt Romney who ran for the US presidency in 2008, Ira Magaziner, former policy adviser to President Clinton and an adviser to the IDA here, and lots of business high-flyers and lorry loads of academics. Its research work carries a lot of weight.

(Pictured: BHP Billiton, the Australian mining company. The company's anti-taxation advertising campaign placed pressure on Australian PM Kevin Rudd to resign)

Just a few weeks ago, the group published its tenth annual global wealth report, Regaining Los t Ground: Resurgent Markets and New Opportunities, and its revelations were very bullish.

Global wealth, it said, staged a remarkable comeback in 2009, increasing by 11.5 per cent to $111.5 trillion, just short of the year-end peak set in 2007.

North America had the largest absolute gain in wealth at $4.6 trillion (15 per cent). The largest percentage gain and the second largest in absolute terms occurred in Asia-Pacific (excluding Japan) , where wealth increased by 22 per cent, or $3.1 trillion.

Latin America had the secondhighest growth rate at 16 per cent. Europe remained the wealthiest region. Its $37.1 trillion represented one-third of the world’s wealth. It was one of several regions where wealth surpassed the pre-crisis peak.

According to the report, North America and Japan were the only regions where wealth remained below the year-end 2007 levels.

The Boston Consulting Group expects global wealth to grow at an average annual rate of nearly 6 per cent from the end of 2009 right through to 2014.The report said the recovery in wealth was driven by resurgent financial markets and increased savings.

So what is this recession thing? If the wealth of the world is back to its peak and projected to grow at a rate of 6 per cent for the next five years, what are we worrying about?

Unfortunately, there is a snag. 

According to the report, wealth became slightly more concentrated as it grew last year. Less than 1 per cent of all householders were millionaires, but they owned about 38 per cent of the world’s wealth, up from about 36 per cent in 2008.

Yes, you read right. Actually, it gets worse. According to the Boston Consulting Group, households with more than $5 million in wealth represented 0.1 per cent of households but owned about 21 per cent, or $23 trillion, of the world’s wealth, up from 19 per cent in 2008.

Isn’t there something bonkers about a world where one in a thousand households owns more than one fifth of the world’s wealth? And this concentration of the world’s wealth is continuing.

The report says that offshore wealth (defined as assets booked in a country where the investor has no legal residence or tax domicile) grew to $7.4 trillion last year, up from $6.8 trillion in 2008. Switzerland remained the largest offshore centre, with about 27 per cent ($2 trillion) of global offshore wealth.

The heads of government of the major industrial countries of the world are meeting in Toronto this weekend in an attempt to devise a global strategy to rescue the world from recession.

But not one of them will remark on the glaring absurdity that, while the world is in recession, the world’s wealth is growing and being concentrated in the possession of such a tiny fraction of the world’s population.

It is because they - and most of the rest of the world - are trapped in a mindset that such massive disparities of wealth are natural and irreversible, that they are the outcome of a sacrosanct free market system, which cannot be disturbed without causing a collapse of the economic order.

Last Wednesday, the new British chancellor of the exchequer, George Osborne, introduced an emergency budget in Westminster which he proclaimed would protect the vulnerable (you know, the usual stuff that is put into budget speeches to give it that touchy feely tinge).

The Institute for Fiscal Studies in Britain has stated the opposite, that the budget will hit the poorest hardest. Why?

Britain is one of the most unequal countries in the world, with a greater concentration of wealth than most countries, so why not have the rich pay for the crisis?

Across the world, in Australia, a Labour prime minister, Kevin Rudd, has lost his job because of a seven-week advertising campaign conducted by two mining corporations, BHP Billiton and Rio Tinto Group, to drop a proposal to impose on mining companies a 40 per cent tax on all profits above a 6 per cent return on investment.

BHP Billiton Ltd had profits of almost $11 billion in 2009 and Rio Tinto had profits of around $14 billion.

Now the new Australian government led by Welsh-born Julia Gillard has announced it will abandon the tax proposal and has invited the mining industries to a ‘‘full and open engagement’’.

No outrage at all, apparently, that two massive mining corporations can conspire to overthrow a prime minister over a proposal to distribute more fairly the proceeds for extracting the country’s natural resources.

But that’s the way of the world.